Developing markets to increase their share of
the global ad market from 32.3% to 35.9% over the next three years

Internet’s share of expenditure to rise from
15.9% in 2011 to 21.2% in 2014, exceeding 30% in four markets

ZenithOptimedia
predicts global ad expenditure will end this year at US$464 billion, 3.5%
higher than in 2010, then accelerate to US$486 billion – a 4.7% growth – despite
the continuing slowdown in Europe and fears that its debt crisis will get much
worse. We then expect ad expenditure to grow 5.2% in 2013 and 5.8% in 2014.

This
acceleration in global expenditure is the result of the ‘quadrennial’ effect
and Japan’s recovery from the effects of the earthquake in March. Every four
years the quadrennial events – the summer Olympics, the European Football
Championship and the US Presidential and other elections – provide a reliable
boost to the global ad market. This time we expect the combination of the
quadrennial effect and the Japanese recovery to add US$7 billion to ad
expenditure in 2012. Without this extra stimulus, ad expenditure would grow
3.1% next year, slightly less than this year.

The global ad
market is therefore remarkably strong at a time when the eurozone threatens to fall
back into recession and drag down the growth of its trading partners. That’s
because advertisers are in a very different position now than they were at the
start of the last downturn in 2008. In general, advertisers have built up large
cash reserves and – thanks to exceptionally low interest rates in the developed
world – are earning very little interest on this cash.

Marketers have
the lessons of the last downturn fresh in their minds, in particular that downturns
are a great time to expand market share. During an economic downturn consumers
fundamentally reassess their spending habits, partly to save money, and partly
as a way of treating themselves to affordable luxuries in times of gloom.
Brands that gain the loyalty of consumers in a downturn can reap the benefits
for years to come. We therefore expect advertisers to invest their cash
reserves in competition for market share, and as a way of stimulating extra
consumption.

Western Europe is
at the centre of the current economic turmoil, and we forecast it to grow by
just 2.0% in 2012, even though the Olympics is being held in the UK (which
means that the coverage will be broadcast at ideal times for Western European
audiences) and most of the big markets will be participating in the European
Football Championship. Assuming the economy improves by the end of next year,
we forecast 2.8% growth in 2013 and 3.3% in 2014.

Our forecast
assumes that GDP continues to slow in the eurozone (and the rest of Western
Europe) towards the end of 2011 and the beginning 2012. However, the economic
situation is extremely uncertain and could get even worse, so we have
considered the potential effects of a further deterioration of the debt crisis
in Europe. This would clearly depress advertising in the eurozone and its main
trading partners, but its impact on global growth should be limited. Looking at
previous examples of countries defaulting on their debts (such as Russia in
1998 or Argentina in 2002), and the wider regional effects of this default, we
estimate that a default in two eurozone countries, coupled with deeper
recession in the eurozone and other Western European markets, would bring
growth in Western Europe down to -4.0%, but global ad expenditure would still
grow by 3.2%.

North America
now looks decidedly healthier than Western Europe. In the US, industrial
production and employment growth are on the rise, and foreclosures are down.
Retail sales rose 7% in October, and sales on ‘Black Friday’ were up 6.6% to a
record US$11.4 billion. Canada has performed strongly throughout the downturn.
We forecast 3.6% growth in North American ad expenditure in 2012, strengthening
to 3.7% in 2013 and 4.4% in 2014.

We predict ad
expenditure to grow 3.1% in Japan next year, as it recovers from the damage
caused by the earthquake and tsunami in March, which severely disrupted media
and advertising for several weeks this year. After this one-off stimulus we
expect Japanese growth to fall back to 1.9% in 2013 and 2.5% in 2014.

Most of the
growth in global ad expenditure is now coming from developing markets, which we
forecast to contribute 58% of new ad dollars between 2011 and 2014. Asia
Pacific, Central & Eastern Europe and Latin America are all expanding much
faster than the developed world, driven by both their current economic
performance and their future potential. Over the next three years we expect
Asia Pacific (excluding Japan) to grow by an average of 10.4% a year, Central
& Eastern Europe to grow 9.6% a year and Latin America to grow by 7.3% a
year. The exception is the Middle East & North Africa, where political
turmoil has disrupted media production and distribution, and made advertisers
wary of attracting negative attention. We forecast the Middle East & North
Africa to grow at an average of 1.3% between 2011 and 2014. Overall we expect
developing markets – which we here define as everywhere outside North America,
Western Europe and Japan – to increase their share of the global ad market from
32.3% in 2011 to 35.9% in 2014.

Beyond the BRICs: the next wave of
emerging ad markets

Adspend growth (2014 v 2011)

US$ million,
current prices. Currency conversion at
2010 average rates.

Adspend growth

1

China

16,439

2

Russia

4,418

3

Indonesia

3,768

4

Brazil

2,972

5

South Africa

2,050

6

Argentina

1,812

7

India

1,571

8

Turkey

1,435

9

Mexico

1,092

10

South Korea

1,016

Source: ZenithOptimedia

Over the next
three years nearly half (48%) of all the world’s growth in ad expenditure will
come from just ten developing markets. The four BRIC markets alone (Brazil,
Russia, India and China) are forecast to account for 33% of global growth.
Beyond the BRICs, there are six fast-growing markets we forecast to add between
US$1 billion and US$4 billion each to the global ad market, and deliver another
15% of global growth: Indonesia, South Africa, Argentina, Turkey, Mexico and
South Korea. In these ten markets ad expenditure occupies 0.32% of GDP, less
than half of the world average of 0.70%, demonstrating their huge potential for
further catch-up growth.

There are now
two ‘developing’ markets in the world’s top ten ad markets, and there will be
three in 2014. China is now the third-largest ad market in the world, and is
catching up quickly with second-placed Japan. In 2005 China’s ad market was 23%
of the size of Japan’s, in 2011 it is 66% and by 2014 we predict it to be 95%.
Brazil, in sixth place, is 84% of the size of the UK in 2011 and will be 91% in
2014. Russia, which was in eleventh place in 2011, will be tenth in 2013 and
ninth in 2014.

Top ten ad markets

US$ million,
current prices. Currency conversion at
2010 average rates.

The internet continues
to grow much faster than any other medium, at an average of 15.9% a year
between 2011 and 2014. Display is the fastest-growing segment, growing by 18.9%
a year, driven mainly by online video and social media. Streaming video ads are
burgeoning extremely quickly, thanks to the emergence of do-it-yourself tools
that have allowed local advertisers to enter the market. In most developed
markets, social media sites are near the top of the list of most-popular
websites, and they are often way ahead of their rivals in time spent by users. Other
display publishers are developing new tools and formats to compete with social
media sites. Paid search is growing by 15.7% a year, but its growth is being
slightly restrained by the shift in search behaviour from desktop to mobile
devices, where costs are currently lower. Online classified is growing
relatively slowly, by 9.2% a year, while employment and property markets remain
weak in the biggest countries.

Internet advertising by type

US$ million, current pricesCurrency conversion at 2010 average rates.

2010

2011

2012

2013

2014

Display

21,845

25,362

29,965

35,597

42,648

Classified

10,951

11,989

13,068

14,236

15,594

Paid search

31,183

35,491

41,234

47,931

55,039

Total

63,979

72,842

84,267

97,764

113,281

Source: ZenithOptimedia

The internet is
also the biggest contributor of new ad dollars to the global market. Between
2011 and 2014 we expect internet advertising to account for 52.9% of the growth
in total expenditure. As the largest segment, paid search will contribute
25.6%, followed by display at 22.6%, with classified at a much lower 4.7%.

Overall, we
predict internet advertising will increase its share of the ad market from 15.9%
in 2011 to 21.2% in 2014. Internet advertising already accounts for more than
25% of total ad expenditure in four markets (Denmark, Norway, Sweden and the
UK), and by 2014 we expect it to account for more than 30% in four markets
(Canada, Norway, Sweden and the UK), so there is plenty of potential for
further growth in internet advertising’s market share.

Internet
advertising is now clearly dominated by Google, which has
increased its share of the internet ad market from 34.9% in 2006 to 44.1% in
2010. Over this time Google has tightened its grip on global search (raising
its share of searches from 72% in 2006 to 85% now) and established a lead in
traditional display and online video with the help of the acquisition and
development of companies like DoubleClick and YouTube. In addition, its three
main early competitors (Microsoft, Yahoo! and AOL) have failed to match this pace
of development and lost a lot of ground; their combined market share fell from
33.1% in 2006 to 13.8% in 2010. Since 2006 Facebook has established itself as a
major supplier, increasing its market share from just 0.2% to 3.1% in 2010.
Last year Facebook doubled its share and overtook AOL; at its current pace of
growth it is likely to overtake Microsoft by the end of 2011.

Market share of the main internet portals

Share of global internet ad expenditure (%)

2006

2007

2008

2009

2010

Google

34.9

40.3

42.5

41.9

44.1

Microsoft

8.1

7.9

4.2

4.0

4.0

Yahoo!

18.7

14.9

11.7

9.6

8.3

AOL

6.3

5.5

4.2

2.2

1.5

Facebook

0.2

0.4

0.6

1.4

3.1

Total

68.1

68.9

63.2

59.2

61.0

After the
internet, the main contributor to global ad growth is television, which we
forecast to supply 41.1% of new ad dollars between 2011 and 2014. Television’s
share of the global ad market has risen steadily over the last few years: we
expect it to end this year with 40.2% of all ad expenditure, up from 37.0% in
2005. The amount of time viewers spend watching television has increased, and
even though viewers are presented with a wider choice of channels than ever,
the biggest television events are attracting record audiences. We expect the
popular televised quadrennial events to lift television’s share to 40.4% in
2012, but beyond that we forecast a very slight decline to 40.3% in 2013 and
2014, as often happens after a quadrennial year.

Newspapers and
magazines have been declining since 2007, with a brief pause for magazines in
2010. We expect this decline to continue throughout our forecast period.
Magazines are suffering less than newspapers, because the experience of reading
a magazine is less easy to replicate online, and because they do not rely so
much on the timely delivery of information, where the internet has a big
advantage over newspapers. We predict magazine ad expenditure will shrink by
0.7% a year over our forecast period, while newspaper ad expenditure shrinks by
1.1%.

Advertising expenditure by medium

US$ million, current pricesCurrency conversion at 2010 average rates.

2010

2011

2012

2013

2014

Newspapers

94,600

91,495

89,868

88,785

88,446

Magazines

43,741

43,122

42,681

42,464

42,186

Television

176,627

184,290

193,735

203,608

215,737

Radio

32,017

32,903

33,667

34,827

35,923

Cinema

2,313

2,442

2,564

2,732

2,916

Outdoor

29,824

31,291

32,928

34,559

36,350

Internet

63,979

72,842

84,267

97,764

113,281

Total *

443,100

458,385

479,710

504,738

534,839

Source: ZenithOptimedia

* The totals here are lower than the totals in the
‘Advertising expenditure by region’ table above, since that table includes
total adspend figures for a few countries for which spend is not itemised by
medium.

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